I N T E R N AT I O N A L

Arbitrating International
Intellectual Property Disputes

BY JOSEPH P. ZAMMIT AND JAMIE HU

Joseph P. Zammit, a partner, and Jamie Hu, an associate, in the New York office of
Fulbright & Jaworski L.L.P., practice in the area of intellectual property. Mr. Zammit is
the chair of the Intellectual Property Department and the co-chair of the International
Arbitration Practice Group in the firm’s New York office. This article was first published
in Mealey’s International Arbitration Report. Copyright (c) 2009 Joseph P. Zammit
and Jamie Hu.

In today's world, disputes over intellectual property rights fre-

quently transcend national borders. Although not without its own
complexities, arbitration can offer a more streamlined and efficient
mechanism for resolving such disputes than litigation in multiple national courts.

T
he importance of intellectual property (IP) rights in the global
economy can hardly be doubted. The growing reliance on technol-
ogy in the supply of goods and services, and the rise of high tech
industries worldwide, has greatly increased the demand for patent protec-
tion. The desire to secure and promote a market image across linguistic and
cultural boundaries has significantly enhanced the importance of trademarks.
And new methods for transmitting, receiving and storing text, sound, video,
images and other content have broadened the application of copyright laws.
Disputes over intellectual property rights at the are territorial in nature, and hence rights created by
international level can arise from a variety of sources, one country cannot be enforced in another.
including cross-border licenses and cross-licenses, Consequently, redressing infringement of counterpart
technology transfer agreements, joint research and patents, copyrights or trademarks in various countries
development projects, distributorship arrangements, entails litigation in multiple foreign courts with differ-
non-disclosure agreements, branding determinations, ent judicial systems and judges with varying degrees of
adoption of domain names, and product design deci- experience and qualifications. Of course, there must be
sions. Resolving such IP disputes in national courts, a basis for personal jurisdiction over the defendant
when the parties are of differing nationalities, can pres- under the local law standards of each of the forums in
ent difficulties. which the plaintiff wishes to take action, something
Generally, IP rights created by national legislation that may not always be so easy to obtain. Moreover, lit-

© 2009 American Arbitration Association, Inc. All rights reserved. Reprinted from the Dispute Resolution Journal.
For permission to reprint this article or additional information, please contact zuckermans@adr.org.
INTERNATIONAL
igating in multiple jurisdictions is extremely expensive and
time-consuming, and poses the risk of inconsistent results.
Even if an IP rights holder is successful, it faces difficulty
in enforcement due to the lack of an international treaty
on enforcement of foreign judgments.
International Arbitration as an Alternative
Given the foregoing problems, it is worth considering
the use of arbitration for the resolution of international IP
disputes. Arbitration offers a number of advantages over
litigation in national courts:
• A Single Forum. The parties can agree to resolve their
multi-jurisdictional disputes in a single arbitral forum.
They can avoid litigation in multiple countries, with its
attendant delay, expense and opportunity for inconsistent
results. With a properly drafted arbitration clause or sub-
mission agreement, there are no jurisdictional issues
because the agreement to arbitrate constitutes submission
to the jurisdiction of the arbitrators.
• Party Autonomy. Arbitration offers the parties the
opportunity to exercise greater control over the conduct of
the dispute-resolving mechanism. The parties can choose
the applicable law, as well as the location and language of
the proceedings. They can select ad hoc or institutional
arbitration. They can tailor the procedural rules, including
those relating to discovery, to meet their specific needs.
• Neutrality. Arbitration can be neutral to the law, lan-
guage and judicial system of the parties, and thus avoid any
home court advantage. Arbitrators in an international arbi-
tration must be impartial, even when the agreement to
arbitrate al lows each party to designate an arbitrator.
Partiality is one of the few grounds on which a court can
refuse to enforce an arbitral award.
• Expertise. The parties can select arbitrators who have
special expertise in the legal, technical and/or business
areas relevant to the resolution of their disputes. The par-
ties can specify in the agreement to arbitrate the criteria
for serving as an arbitrator. Moreover, before selecting the
arbitrators, the parties can satisfy themselves that the arbi-
trators have the time available to resolve the dispute in an
expeditious manner.
• Flexibility. Arbitrators have broad remedial powers. In
addition to damages and injunctions, arbitrators can fashion
non-traditional remedies. For example, in one arbitration
involving copyright infringement of software, the arbitrator
directed the respondent to purchase a license. Seeking
interim relief from a court (such as a temporary restraining
order or preliminary injunction) is permitted under most
arbitral rules and will not constitute a waiver of the right to
arbitrate.1 Some arbitral rules now provide for emergency
measures of protection within the arbitration itself.2
• Confidentiality. Arbitration can usually provide greater
confidentiality than litigation in court. The parties can
take steps to prevent confidential information, such as
trade secrets and sensitive business information, from
being publicly disclosed. Institutional arbitration rules vary
considerably with respect to whether confidentiality is
2 NOVEMBER 2009/JANUARY 2010
expressly addressed and, if so, to what extent. For example,
Article 34 of the International Centre for Dispute Resolu-
tion’s (ICDR) International Arbitration Rules provides for
arbitrators and administrators to maintain confidentiality,
but does not explicitly require the parties to do so. Even
where arbitral rules are silent, however, the parties can
provide in their agreement to arbitrate for a greater degree
of confidentiality than may be available in a national court,
which must balance the parties’ desires for confidentiality
with the public’s right to know about proceedings in the
state judicial system.
• Finality. Arbitral awards are not normally subject to
appeal in court. Indeed, a recent decision of the U.S.
Supreme Court, in Hall Street Associates v. Mattel Inc., held
that the parties cannot agree to subject an award to judicial
review for an error of law consistent with the Federal
Arbitration Act.3 Under the provisions of the U.N. Con-
vention on the Recognition and Enforcement of Foreign
Arbitral Awards (the New York Convention), signatories
are obligated to enforce foreign arbitral awards without
review on the merits. The New York Convention provides
only seven limited grounds for refusing to en force an
award, none of which entail errors of law or fact by the
arbitrators relating to the merits.
• Preservation of Business Relationships. Business people
often view arbitration as more informal, and hence less
antagonistic and more civil, than litigation. Moreover,
because of the greater degree to which disputes can be
kept confidential in arbitration, there is less temptation to
grandstand. Where there is an ongoing business relation-
ship between the parties, it may be easier to preserve intact
when disputes are resolved through arbitration rather than
litigation.
In light of the foregoing advantages, there seems to be a
growing trend in the use of arbitration to resolve IP dis-
putes. The World Intellectual Property Organization’s
Arbitration Center has received over 100 requests for arbi-
tration in recent years,4 and administered about 15,000
domain name disputes since 1999. 5 The Interna tional
Chamber of Commerce (ICC) has estimated that 10% of its
annual caseload involves an IP element.6 In 2007, the per-
centage of IP contracts underlying disputes submitted to the
ICC was approximately 5.5%.7 Given the deepening world-
wide recession, one would expect this trend to continue,
since arbitration arguably affords a quicker, cheaper, more
efficient and less confrontational way to resolve IP disputes.
Arbitration Is Not a Panacea
It must be emphasized, however, that arbitration is not
without its limitations. The use of arbitration is not
right—or even feasible—for every situation. Unless there
is a pre-existing contractual relationship between the par-
ties, it may be very difficult to convince an adverse party to
agree to arbitration after a dispute arises. Moreover, if the
parties have unequal resources, the one with greater
resources may find a tactical advantage in court litigation
in multiple jurisdictions.
 An arbitral award cannot set a public legal precedent. It
is generally binding only on the parties involved. And,
unless the parties have been very clear and specific in their
agreement to arbitrate, discovery is likely to be far more
limited and difficult than one or both parties is used to or
deems necessary, if only because many international arbi-
trators coming from a civil law background have strong
negative feelings about broad American-style discovery.
Perhaps the greatest limitation on the more frequent
use of arbitration to resolve international IP disputes is the
fact that the arbitrability of IP disputes is not universally
recognized. While claims based on IP rights created by the
acts of the rights holder itself (for example, trade secrets)
generally do not present a problem of arbitrability, ques-
tions of arbitrability may arise with respect to IP claims
based on rights created by the acts of sovereign states (in
particular in the area of patents).
Many jurisdictions (including the United States, 8
Canada,9 Australia,10 and the United Kingdom11) allow the
When considering whether to provide for arbitration of IP disputes,
one must consider not only whether such issues would be arbitrable
under the laws at the seat of arbitration, but also under the laws of
those jurisdictions where enforcement would likely be necessary.
arbitration of all IP issues, including patent validity, at
least where raised defensively to a claim of infringement.
Any award adjudicating validity usually would be effective
only as between the parties to the arbitration and would
have no effect on the rights and obligations of third par-
ties. (Thus, unlike a U.S. court judgment declaring a
patent invalid, an arbitral award finding invalidity would
not preclude, on the grounds of collateral estoppel, the
patentee from subsequently suing another entity on the
same patent.) Switzerland goes even further, permitting IP
rights registrations to be stricken on the basis of an arbitral
award.12
However, other countries (such as France13 and China14)
seem to permit arbitration of infringement issues, but not
those of validity. Obviously, separating the issues of in-
fringement and validity complicates the resolution of dis-
putes, diminishes the value of arbitration as a single forum,
and introduces difficult strategic and tactical issues into
the equation.
When considering whether to provide for arbitration of
IP disputes, one must consider not only whether such
issues would be arbitrable under the laws at the seat of
arbitration, but also under the laws of those jurisdictions
where enforcement would likely be necessary. For exam-
ple, consider a cross-license involving U.S. and French
patents. The license contains an arbitration clause placing
the seat in London. Even though an award finding the
French patents invalid between the parties would be valid
under English law, the courts of France (and perhaps other
DISPUTE RESOLUTION JOURNAL
countries) probably would not recognize or enforce the
award under the New York Convention, for one of the fol-
lowing reasons: (1) the arbitration agreement is invalid
under the law of the contract if that law is French, (2)
patent issues are not arbitrable in France, or (3) the award
contravenes French public policy. Each of these reasons is
one of the very few grounds permitted under the New
York Convention for a court in a signatory country to
refuse to enforce a foreign arbitral award.
Can the parties choose to apply the substantive IP law
of one jurisdiction (such as the rules relating to validity
and infringement) to IP rights (such as patents) created by
another? There is no clear answer. Where a case involves
related patents from multiple countries, doing so could
simplify and streamline the proceedings and the principle
of party autonomy suggests that it should be permitted.
On the other hand, there is a conceptual problem in sepa-
rating an IP right that is territorial in nature from the set
of legal rules established to protect and enforce that right.
Moreover, enforcement of an award may become a prob-
lem in the jurisdiction that created the IP right if a law
other than its own was applied to determine infringement
or validity. Requiring arbitrators to apply the patent law of
multiple jurisdictions to a series of related patents issued in
different countries certainly diminishes the value of arbi-
tration as a cost effective single forum to resolve interna-
tional IP disputes, but it does not eliminate it. Having a
single panel of arbitrators apply multiple patent laws to
multiple, but related, patents is still more likely to be effi-
cient, and more likely to lead to consistent results, than
separate litigations in multiple national courts.
Some Pitfalls to Avoid in Drafting Arbitration Clauses
There are a number of pitfalls that parties should try to
avoid in drafting arbitration clauses. The first is trying to
divide potential disputes into non-arbitrable IP issues and
arbitrable commercial issues. Sometimes the parties decide
that arbitration is fine for the commercial aspects of their
agreement, but not for disputes over IP issues, and there-
fore they try to carve out IP disputes from the arbitration
clause. Unfortunately, they can unwittingly create un-
necessary disagreements and procedural sparring over the
scope of the arbitration clause. For example, the arbitra-
tion clause in a patent license might purport to exclude
issues relating to the validity or scope of the patent from
the arbitration clause. If the licensor commences an arbi-
tration for allegedly unpaid license fees, the purported
exclusion from the arbitration clause would create the
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opportunity for delay and litigation in multiple forums arbitrators (especially those with civil law backgrounds), if
because determining the proper amount of royalties could left to their own inclinations, may be reluctant to permit
de pend on what products fall within the scope of the far-reaching document discovery and almost certainly will
patent. The licensee might commence a separate declara- not permit depositions except in the rarest of circum-
tory judgment action in court to determine whether par- stances. Therefore, it behooves one who is contemplating
ticular products were covered by the patent and seek a stay the use of arbitration for IP disputes to include rather spe-
of the arbitration until that issue is decided. This situation cific provisions with respect to the parties’ rights to con-
is a natural consequence of having different dispute resolu- duct discovery. This does not mean that the discovery pro-
tion mechanisms for issues that the parties assume are dis- vided for must or should be as broad and open-ended as
tinct but are in fact interrelated. that permitted by the Federal Rules of Civil Procedure,
Similar problems can arise where a transaction involves but unless a party feels it will need little or no discovery in
multiple agreements. Inconsistencies between agreements the event of a dispute, it is unwise to leave such matters
insofar as arbitration is concerned are a real risk. Some entirely to the discretion of the arbitrators.
agreements may have arbitration provisions, while others Finally, difficulties can be created in arbitrator selection
do not, especially where different attorneys are involved in by being overly detailed in the statement of qualifications.
drafting the various agreements. Even if all the agreements It is true that one of the advantages of arbitration is the
contain an arbitration clause, they may be inconsistent ability of the parties to specify the qualifications for being
with respect to the applicable arbitral rules and institu- an arbitrator. If the parties are too detailed in what they
tions, the place of arbitration, or the substantive law. This require, however, the danger is that it may become impos-
can create a nightmare when the failure of a transaction sible to find someone who satisfies the requisite criteria and
leads to a number of interrelated disputes. is available to serve when a dispute arises. If so, this could
So-called “step” clauses can also create problems. It is frustrate the right to arbitrate altogether, especially if the
not unusual these days for parties to include in their con- opposing party is not inclined to cooperate to modify the
tracts provisions for an escalating series of steps (e.g., ini- contractual criteria to something more practical. It is better
tial discussions between project managers, failing which to state qualifications in broad terms (e.g., a patent lawyer
resolution efforts by intermediate level executives, failing with experience in a particular industry), rather than enu-
which meetings between senior managers, and as a last merate a litany of qualifications that may be difficult to
resort mediation) to try to resolve disagreements by mutu- meet (e.g., a 20-year patent lawyer with a Ph.D. in electri-
al agreement before submitting them to binding resolution cal engineering who spends more than 50% of his profes-
through arbitration. Unless properly drafted, such provi- sional time on matters involving nanotechnology and who
sions can unduly delay the ultimate adjudication of dis- speaks English, German and Russian).
putes by creating conditions precedent to arbitration that
are temporally unbounded. This can be particularly trou- Conclusion
blesome if emergency relief, such as an injunction, is nec- Arbitration has generally become the preferred method
essary prior to the time a condition precedent has clearly of resolving international commercial disputes because of
been fulfilled. If one is going to include such step provi- its perceived superiority over litigation in national courts
sions, the contract should either provide that such proce- in terms of efficiency, flexibility, and fairness. However,
dures are not a condition precedent to arbitration or, at there has been reluctance to use arbitration to adjudicate
least, the time period for each stage should be clearly international IP disputes, although that reluctance appears
defined and limited. Moreover, the contract should clearly to be diminishing.
provide that the step provisions do not bar a party from Hopefully this article has demonstrated that, even
seeking interim emergency measures. though arbitration has certain limitations, the process can
Another pitfall to be avoided is not providing for ade- often be a superior mechanism for resolving international
quate discovery. As previously mentioned, broad discovery IP disputes—one that parties and their legal counsel
is not typical in international arbitration, and international should consider. ■
ENDNOTES
1 See, e.g., ICDR International Arbitration Arbitration Rev.: The European & Middle Eastern Inc., 1 S.C.R. 178 (Can. 2003) (The Supreme
Rules, art. 21(3). Arbitration Review 2008, Int’l J. Pub & Private. Court of Canada held that “[t]he parties to an
2 See, e.g., id, art. 37. Arb. 1. arbitration agreement have virtually unfettered
3 552 U.S. 1 (2008). 7 2007 Statistical Report, 19(1) ICC Inter -
autonomy in identifying the disputes that may
4 WIPO Arbitration and Mediation Center national Court of Arbitration Bull. (2008). be the subject of the arbitration proceeding.”).
8 U.S. patent laws allow the parties to submit 10 Matthew A. Smith et al, “Arbi tra tion of
Caseload Summary, www. wipo.int/amc/en/cen-
ter/caseload. html (last visited March 11, 2009). to arbitration “any dispute relating to patent Patent Infringement and Validity Issues World-
5 WIPO Arbitration and Mediation Center validity or infringement.” See 35 U.S.C. § wide,” 19 Harv. J.L. & Tech. 299, 347.
294(a). The “award shall be final and binding 11 Lamb & Garcia, supra n. 6, at 3.
Domain Name Dispute Resolution Statistics,
between the parties to the arbitration but shall 12 Id. at 3.
www.wipo.int/amc/en/domains/statistics/
have no force or effect on any other person.” 35 13 Smith et al, supra n. 10, at 333.
cases.jsp.
6 Sophie Lamb & Alejandro Garcia, “Arbitra- U.S.C. § 294(c). 14 Id. at 345.
9 See Desputeaux v. Editions Chouette (1987)
tion of Intellectual Property Disputes,” in Global

4 NOVEMBER 2009/JANUARY 2010